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Exhibit 99(b)
NEW LINE CINEMA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, SEPTEMBER 30,
1992 1993
(DERIVED FROM
AUDITED
FINANCIAL
STATEMENTS) (UNAUDITED)
-------------- --------------
CASH AND CASH EQUIVALENTS $ 1,849,698 $ 6,737,170
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF APPROXIMATELY $640,000 IN 1992 AND
$972,000 IN 1993 35,968,253 73,144,937
FILM INVENTORIES 147,775,148 190,014,728
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION OF APPROXIMATELY $5,425,000 IN 1992 AND
$6,947,000 IN 1993 10,309,209 10,372,895
NOTES RECEIVABLE FROM OFFICERS AND OTHER RELATED PARTIES 1,965,000 2,010,000
OTHER ASSETS 6,540,881 6,516,644
INVESTMENT IN AFFILIATED COMPANY 17,937,997 19,833,997
-------------- --------------
TOTAL ASSETS $ 222,346,186 $ 308,630,371
============== ==============
SEE ACCOMPANYING NOTES.
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NEW LINE CINEMA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, SEPTEMBER 30,
1992 1993
(DERIVED FROM
AUDITED
FINANCIAL
STATEMENTS) (UNAUDITED)
-------------- --------------
NOTE PAYABLE TO BANK $ 58,500,000 $ 89,800,000
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 8,218,481 20,042,980
THIRD PARTY PARTICIPATIONS PAYABLE 23,834,301 33,612,893
LONG-TERM DEBT 30,000,000 30,000,000
DEFERRED INCOME 21,702,987 11,167,858
DEFERRED INCOME TAXES 7,800,121 9,479,121
-------------- --------------
TOTAL LIABILITIES 150,055,890 194,102,852
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, PAR VALUE $.01 PER SHARE; 300,000
SHARES AUTHORIZED; NONE OUTSTANDING --- ---
COMMON STOCK, $.01 PAR VALUE; 50,000,000 SHARES
AUTHORIZED; ISSUED AND OUTSTANDING:
12,728,560 IN 1992 AND 15,799,726 IN 1993 127,285 157,997
CAPITAL IN EXCESS OF PAR VALUE 37,825,947 70,593,844
RETAINED EARNINGS 34,552,348 43,984,305
-------------- --------------
75,505,580 114,736,146
TREASURY SHARES, 64,677 IN 1992 AND 62,677 IN 1993, AT COST (215,284) (208,627)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 72,290,296 114,527,519
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 222,346,186 $ 308,630,371
============== ==============
SEE ACCOMPANYING NOTES.
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NEW LINE CINEMA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
NINE MONTHS ENDED THREE MONTHS ENDED
--------------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1992 1993 1992 1993
--------------- ------------ ------------- ------------
REVENUE $ 161,939,967 $ 238,693,989 $ 60,684,302 $ 62,209,752
COSTS RELATING TO REVENUE 140,143,193 198,934,042 56,479,774 49,791,850
------------- ----------- ----------- ------------
GROSS INCOME 21,796,774 39,759,947 4,204,528 12,417,902
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 16,905,719 20,433,096 6,249,418 6,546,390
SELLING 901,961 1,107,019 369,736 467,919
DEPRECIATION AND AMORTIZATION 1,867,978 2,775,000 718,171 786,000
------------- ----------- ----------- ------------
19,675,658 24,315,115 7,337,325 7,800,309
------------- ----------- ----------- ------------
INCOME (LOSS) FROM OPERATIONS 2,121,116 15,444,832 (3,132,797) 4,617,593
INTEREST EXPENSE (1,657,640) (2,527,525) (1,157,795) (888,613)
OTHER CHARGES (132,568) (388,623) (24,938) (164,522)
------------- ----------- ----------- ------------
INCOME (LOSS) BEFORE EQUITY INCOME OF, AND GAIN
ON ISSUANCE OF STOCK BY, AFFILIATED COMPANY
AND PROVISION FOR INCOME TAXES 330,908 12,528,684 (4,315,530) 3,564,458
EQUITY IN INCOME OF AFFILIATED COMPANY 1,325,000 1,896,000 575,000 1,741,000
GAIN ON ISSUANCE OF STOCK BY AFFILIATED COMPANY 4,334,867 -- 4,334,867 --
------------- ----------- ----------- ------------
INCOME BEFORE PROVISIONS FOR INCOME TAXES 5,990,775 14,424,684 594,337 5,305,458
PROVISION (BENEFIT) FOR INCOME TAXES 1,758,946 4,992,727 (6,000) 1,587,132
------------- ----------- ----------- -----------
NET INCOME $ 4,231,829 $ 9,431,957 $ 600,337 $ 3,718,326
============= =========== =========== ===========
PRIMARY NET INCOME PER SHARE OF COMMON STOCK $ 0.30 $ 0.56 $ 0.04 $ 0.21
============= =========== =========== ===========
FULLY DILUTED NET INCOME PER SHARE
OF COMMON STOCK $ 0.30 $ 0.53 $ 0.04 $ 0.20
============= =========== =========== ===========
PRIMARY WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 14,327,274 16,892,165 14,170,934 18,086,977
============= =========== =========== ===========
FULLY DILUTED WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK OUTSTANDING 14,327,274 19,479,971 14,170,934 20,279,126
============= =========== =========== ===========
SEE ACCOMPANYING NOTES.
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NEW LINE CINEMA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1992 AND NINE MONTHS
ENDED SEPTEMBER 30, 1993
COMMON
CAPITAL IN STOCK
COMMON EXCESS OF RETAINED HELD IN
STOCK PAR VALUE EARNINGS TREASURY TOTAL
------ --------- -------- -------- -----
BALANCE, DECEMBER 31, 1991 (AUDITED) $ 126,716 $ 37,592,837 $ 28,134,133 $ (215,284) $ 65,638,402
ISSUANCE OF 56,909 SHARES OF COMMON STOCK
UPON EXERCISE OF OPTIONS 569 233,110 -- -- 233,679
NET INCOME -- -- 6,418,215 -- 6,418,215
----------- ----------- ---------- --------- -----------
BALANCE, DECEMBER 31, 1992 (AUDITED) $ 127,285 $ 37,825,947 $ 34,552,348 $ (215,284) $ 72,290,296
ISSUANCE OF 175,076 SHARES OF COMMON STOCK
UPON EXERCISE OF OPTIONS 1,751 627,820 -- -- 629,571
SALE OF 2,875,000 SHARES OF COMMON STOCK 28,750 31,821,079 -- -- 31,849,829
ISSUANCE OF 21,090 SHARES OF COMMON STOCK 211 318,998 -- -- 319,209
SALE OF 2,000 SHARES OF TREASURY STOCK -- -- -- 6,657 6,657
NET INCOME -- -- 9,431,957 -- 9,431,957
----------- ----------- ---------- --------- -----------
BALANCE, SEPTEMBER 30, 1993 (UNAUDITED) $ 157,997 $ 70,593,844 $ 43,984,305 $ (208,627) $ 114,527,519
=========== =========== ========== ========= ===========
SEE ACCOMPANYING NOTES.
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NEW LINE CINEMA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1992 1993
------------- -------------
OPERATING ACTIVITIES:
NET INCOME $ 4,213,829 $ 9,431,957
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
INCREASE IN ALLOWANCE FOR DOUBTFUL ACCOUNTS 218,000 332,000
AMORTIZATION OF FILM INVENTORIES 80,379,843 113,678,266
DEPRECIATION AND OTHER AMORTIZATION 1,867,978 2,775,000
UNDISTRIBUTED EARNINGS FROM AFFILIATED COMPANY (1,325,000) (1,896,000)
GAIN ON ISSUANCE OF STOCK BY AFFILIATED COMPANY (4,897,476) ---
DEFERRED INCOME TAXES 1,350,527 1,679,000
CHANGES IN OTHER ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN:
ACCOUNTS RECEIVABLE (2,718,167) (37,508,684)
GROSS FILM INVENTORIES (95,229,336) (155,917,846)
OTHER ASSETS (3,257,149) 1,726,186
INCREASE (DECREASE) IN:
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (4,443,778) 11,824,499
THIRD PARTY PARTICIPATIONS PAYABLE (6,438,246) 9,778,592
DEFERRED INCOME (22,096,285) (10,535,129)
------------- --------------
TOTAL ADJUSTMENTS (56,589,089) (64,064,116)
------------- --------------
CASH USED IN OPERATING ACTIVITIES (52,357,260) (54,632,159)
------------- --------------
INVESTING ACTIVITIES:
PURCHASE OF PROPERTY AND EQUIPMENT (5,881,052) (1,585,686)
NOTES RECEIVABLE FROM OFFICERS AND OTHER
RELATED PARTIES 48,000 (45,000)
------------- --------------
CASH USED IN INVESTING ACTIVITIES (5,833,052) (1,630,686)
------------- --------------
FINANCING ACTIVITIES:
NET PROCEEDS FROM BORROWINGS ON NOTE PAYABLE 55,638,624 96,845,051
REPAYMENT OF NOTE PAYABLE --- (68,500,000)
PROCEEDS FROM ISSUANCE OF SHARES OF COMMON STOCK 138,522 32,805,266
------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES 55,777,146 61,150,317
------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (2,413,166) 4,887,472
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,333,485 1,849,698
------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,920,319 $ 6,737,170
============= ==============
SEE ACCOMPANYING NOTES.
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NEW LINE CINEMA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1993
NOTE 1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three- and
nine-month periods ended September 30, 1993 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1993. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1992.
NOTE 2 - FILM INVENTORIES
Film inventories, net of accumulated amortization, were
approximately as follows (in thousands):
December 31, September 30,
1992 1993
------------ -------------
Films Released $ 62,784 $101,437
Films Completed but Not Released 41,519 4,926
Films in Process 30,557 73,997
Distribution Rights 12,915 9,655
-------- --------
$147,775 $190,015
======== ========
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NEW LINE CINEMA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. These differences relate primarily to the gain on issuance of stock
by an affiliated company, advertising and print expenditures, third party
participations, and film amortization. Prior to the adoption of Statement
109, income tax expense was determined using the deferred method. Deferred
tax expense was based on items of income and expense that were reported in
different years in the financial statements and tax returns and were measured
at the tax rate in effect in the year the difference originated.
As permitted by Statement 109, the Company has elected not to restate
financial statements for any prior years. The effect of the change on pretax
income from continuing operations and the cumulative effect of the change for
the three- and nine-month periods ended September 30, 1993 was not material.
NOTE 4- SUMMARIZED INCOME STATEMENT INFORMATION
OF AFFILIATED COMPANY
The Company currently owns a 37.4% investment in RHI Entertainment,
Inc. ("RHI"), accounted for using the equity method. Prior to July 29, 1992,
the Company owned 52.6% of RHI. At December 31, 1992, RHI was significant as
defined by applicable regulations of the Securities and Exchange Commission.
The following summarizes the income statement of RHI for the three- and
nine-month periods ended September 30, 1992 and 1993 (in thousands),
respectively:
Nine Months Ended Three Months Ended
September 30, September 30,
------------------- ------------------
1992 1993 1992 1993
---- ---- ---- ----
Revenue $39,642 $70,745 $21,324 $48,728
Costs and expenses 34,313 61,581 19,032 40,663
------ ------ ------ ------
Income from operations 5,329 9,164 2,292 8,065
Interest expense, net 625 472 92 286
------ ------ ------ ------
Income before income taxes 4,704 8,692 2,200 7,779
Provision for income taxes 1,812 3,424 847 3,073
----- ----- ------ ------
Net income $2,892 $5,268 $1,353 $4,706
====== ====== ====== ======
Company's share of net income $1,325 $1,896 $ 575 $1,741
====== ====== ====== ======
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NOTE 5 - NOTE PAYABLE TO BANK
On March 26, 1993, the Company entered into a new credit facility
(the "Credit Facility") providing a revolving credit of $150,000,000 for a
period of three years. Except for the increase in principal amount and a
restriction on the amounts of permitted increases in selling, general and
administrative expenses, the terms of the Credit Facility do not materially
differ from the Company's previous credit facility.
NOTE 6 - COMMON STOCK
On March 5, 1993, the Company issued 2,875,000 shares of Common Stock
through a public offering. The net proceeds from this offering approximated
$32,000,000.
NOTE 7 - CONTINGENCIES
Legal Matters
An action is pending against the Company in the Supreme Court of the
State of New York, County of New York, by Smart Egg Pictures, S.A. one of the
joint venture partners with the Company in the initial "Nightmare on Elm
Street" film, for an accounting and damages of at least $5,000,000, together
with punitive damages in connection with the series of Nightmare on Elm Street
films, and for treble damages under the RICO laws. The Company believes that
there are good and meritorious defenses to the claims.
The Writers Guild of America, West, Inc. and the Directors Guild of
America, Inc. and Screen Actors Guild have each filed a demand for arbitration
against the Company seeking payment of residual compensation to writers,
directors and actors, respectively, involved in various productions, and
interest thereon. The claims do not specify damages. The Company has been
recouping amounts it believes were overpaid from residual compensation
otherwise payable. Such recoupment is also the subject of the arbitration
claims. Management believes that the Company has good defenses to the claims
and that its position on recoupment of overpayments is correct.
In May 1992, the Company, Allied Vision, Ltd. ("Allied") and
innovation Books, a division of the Innovative Corporation, were named as
defendants in an action brought by Stephen King in the United States District
Court for the Southern District of New York. The action sought to ban the use
of Mr. King's name in connection with the film "The Lawnmower Man" (the
Film"). The Film completed its theatrical release in the United States and had
its home video release on August 26, 1992. The action was settled in May 1993
involving a payment by the Company of $200,000 and an agreement to make no
further use of Mr. King's name in connection with the Film. The Plaintiff,
however, is seeking to hold the Company in contempt for violation of a consent
decree entered into as part of the settlement, dealing principally with
restrictions in the continued use of Mr. King's name.
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In this connection, the plaintiff is seeking unspecified damages, recall of
certain home video cassettes packages and legal fees.
In January 1993, Troma, Inc. commenced an action against the Company,
certain of its officers and directors and a former officer seeking damages in
excess of $50,000,000 for alleged failure to produce and release a motion
picture based upon the plaintiff's "Toxic Crusaders" characters. The named
officers and directors are entitled to coverage by the Company's policies of
liability insurance. The Company has obtained an order dismissing the tort
claims asserted by the plaintiff and expects to commence discovery shortly.
The Company and its subsidiaries are parties to various other legal
proceedings, all of which are considered routine and incidental to the business
of the Company and are not material to the financial condition and operation of
the business. In management's opinion, the ultimate outcome of these legal
proceedings, as well as the lawsuits discussed above, will not have a material
adverse effect on the financial position of the Company but, although not
probable, could have a material adverse effect on the results of operations in
any one year. At this time, the Company cannot predict the outcome nor
estimate the range of loss for the lawsuits discussed above.
NOTE 8 - SUBSEQUENT EVENT
On October 15, 1993, Turner Broadcasting System, Inc. ("TBS") and the
Company jointly announced that the two companies have entered into a definitive
merger agreement providing for the tax-free merger of the Company with a
wholly-owned subsidiary of TBS. Under the terms of the merger agreement, each
outstanding share of the Company's Common Stock will be converted into the
right to receive 0.96386 share of TBS Class B Common Stock. Based upon the
Company's outstanding shares, options, warrants, and convertible debt
securities, TBS would issue up to approximately 21 million shares of its Class
B Common Stock in the merger.
Consummation of the merger agreement is subject to the approval of the
Company's stockholders and customary conditions to closing. TBS is one of the
world's leading suppliers of entertainment and information programming. The
merger is scheduled to close immediately following a special meeting of the
Company's stockholders, currently expected to be held in December 1993.
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